The Supreme Court has issued a landmark decision that will have a major negative impact on the Korean leveraged buy-out market. Overturning a lower court's decision, it held that the defendant had committed an occupational breach of trust under the Criminal Code when he utilized the acquired company's assets as collateral for borrowing to finance a leveraged buy-out transaction.
Spearheaded by the Ministry of Justice, the Korean government is working on comprehensive changes to the Commercial Code. One proposed amendment introduces a freeze-out provision, which will allow a company's largest shareholder to eliminate those minority shareholders which it believes may be troublesome.
The Seoul Southern District Court has rendered a decision prohibiting the exercise by the largest shareholder of voting rights attached to treasury shares purchased from Daelim Trading Co Ltd, holding that the sale of the treasury shares by Daelim was void.
Although leveraged buyouts are one of the most common types of merger and acquisition worldwide, in Korea they are still viewed with scepticism by both the government and the business sector. However, a recent criminal case may have set an important precedent for determining the legality of leveraged buyouts.
The amended Korean Securities and Exchange Act will soon come into force. It expressly requires the filing of a report on the purpose of ownership in addition to the shareholding status where a party becomes the owner of 5% of the shares of a listed corporation. Harsher penalties for breach of the reporting obligations are also imposed.
The Korea Fair Trade Commission has changed its business combination reporting regulations by issuing Notification 2001-11, which requires foreign companies to report certain significant business combinations occurring between foreign companies outside Korea.
The scope of successor liability is a major factor to be considered when structuring a business acquisition transaction. It is recommended that a purchaser's exposure to successor liability be reduced through risk-shifting mechanisms in the acquisition documentation, such as tight and extensive seller's representations and warranties, and strong indemnities.
This update summarizes the rules that apply to mergers and acquisitions of financially troubled companies based on the practices of the Korean courts and the Practice Guidelines on Mergers and Acquisitions of Companies Under Court Protection promulgated on January 31 2000 (most recently amended on October 9 2001 by the Seoul District Court).
The Ministry of Court Administration of the Supreme Court of Korea has ruled that a corporation with negative net equity may not be the disappearing entity in a merger. The court's reasoning was based on the fact that such mergers violate one of the principles of the Korean Commercial Code.
In recent years several changes have been made to the Commercial Code. The changes are largely a result of the International Monetary Fund financial crisis of 1997, following which the government decided to modify the corporate governance structure to improve the transparency and responsiveness of company management towards minority shareholders.
Including: Government Initiatives; Venture Business; Special Assistance and Exceptions; Variations from Basic Corporate Law; Tax Benefits; Pre-Initial Public Offering Financing; Venture Capitalists; Legal Instruments.